Micro, small, and medium enterprises (MSMEs) play a crucial role in India’s economic development. They make up a large share of industrial units and contribute significantly to manufacturing, exports, and employment generation. However, access to adequate and timely financing is one of the biggest challenges faced by MSMEs because of the lack of collaterals or complex documentation processes, especially those owned by women entrepreneurs. Choosing the right lending institution that understands the unique needs of women-led MSMEs is critical to their growth. This article provides a guide for women entrepreneurs to select the best MSME business loan.
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Wednesday 15 Jan. 2025
Why are Business Loans Essential for Women Entrepreneurs?
Here are the key reasons why business loans are essential for women entrepreneurs:
- Access to Capital – Loans provide the necessary capital required to start or grow a business venture. Many women lack assets under their direct ownership or control to self-finance business ideas.
- Pursue Business Opportunities – The availability of finance allows women entrepreneurs to pursue identified business opportunities at the right time, even if they lack their own funds. This is crucial for success.
- Investing in Innovation: Loans enable entrepreneurs to invest in innovation, whether through adopting new technologies, creating unique products, or implementing efficient processes.
- Building Credit History: Establishing creditworthiness is crucial for women seeking long-term financial stability and independence. This ensures women entrepreneurs overcome financial challenges by availing of loans quickly.
- Gender Bias in Traditional Lending – Banks or traditional lenders often exhibit gender bias by asking for a husband’s co-signature or guarantor for loans to women entrepreneurs. Specific lending programs by the government and the authorised NBFCs are assisting in eliminating these barriers to women getting financial assistance for their businesses.
- Managing Liquidity Needs – Loans help to rectify the working capital requirements during business ups and downs. Overdraft facilities, small cash credit loans, etc., are essential for daily operations.
So, access to formal, affordable business loans helps address capital and operational challenges faced by women entrepreneurs in India.
Different Types of Loans That Are Available for Women Entrepreneurs
Here are some of the best business loans for women:
- Small Business Loans: These loans are for businesses, and some are even for startups. One example is the Line of Credit (LOC), which is helpful for small to medium-sized businesses. To avail of this loan, a good credit score is essential. The lender checks some personal and business documents.
Benefits:
- They have average interest rates from 12% to 30%.
- Get them with or without collateral.
- Great for short-term funding needs.
- Commercial Business Loan: This loan is good for medium-sized businesses. This loan ensures a decent amount for 3-5 years. Usually, it’s for businesses that are at least a year old and making a profit. To get this loan, showing the business’s bank statement for the last year is mandatory.
Benefits:
- Get a loan of up to Rs. 50 lakh or more.
- Applying online is easy, along with early payments.
- Options of 3-5 years to pay it back, and no need for tons of documents.
- Loan Against Securities: Business owners can use investments in stocks, mutual funds, or life insurance policies as collateral. The applicant needs proof that they own the securities that they are using. Applying needs a visit to the bank, and the process is detailed.
Benefits:
- It’s a secured loan, meaning lower interest rates and easier eligibility.
- Ensuring flexibility in paying it back.
- Personal Loan: This loan is for personal or professional needs, and women who are planning a home-based business can consider this. Although it is flexible and can be used for various purposes, maintaining a good credit score is a key eligibility requirement, along with a monthly income.
Benefits:
- It’s unsecured and flexible.
- Up to Rs. 50 lakh for 5 years is possible with this option
- Applying and getting approval is easy, and having a co-applicant can make the process smoother.
What Needs to be Checked While Getting an MSME Loan for Women?
When applying for an MSME business loan, women entrepreneurs must look into the following:
- Loan amount: Estimate funds required for your business expansion or working capital needs. Choose lenders that provide customised loans as per your requirements.
- Collateral required: Assets owned by women entrepreneurs are often limited. Choose lending programs that provide collateral-free or lower-collateral loans.
- Repayment terms: Choose a loan with a tenure that suits your needs and the business’s cash flows. Some lenders offer an initial moratorium period as well.
- Turnaround time: Faster loan approval is essential, so check the process and documents required for the lender to disburse funds quickly.
How Does the NBFC Help Women Get MSME Loans?
Along with skills, business owners need funding to grow their businesses. Most of the time, funding is a barrier for women entrepreneurs. In such scenarios, some of the NBFCs act as a helping hand for entrepreneurs who are looking for business loans. Those NBFCs are different from the traditional lenders by rigorously taking decisions on credit and ensuring easy access to the women entrepreneurs. Collateral-free loans are making the loan process more accessible for entrepreneurs. Unsecured business loans are one of the solutions for small business owners to access capital quickly.
Conclusion
Access to finance is indispensable for women entrepreneur-led MSMEs to realise their full potential. When applying for MSME loans, women entrepreneurs must shortlist lenders as per the customised needs in terms of the loan amount, interest rates, collateral requirement and repayment flexibility. Women entrepreneurs must also opt for lending institutions that are women-centric and provide quick approval. The right financing can be a game-changer for women entrepreneurs to scale new heights.
